[MarketING] Renewed Expectations for China's Economic Recovery

KOSPI Recovers to 2370 Level and KOSDAQ to 780 Level

[Image source=Yonhap News]

The KOSPI rebounded successfully in just one day after a sharp decline the previous day. Reflecting relief over the slowdown in U.S. inflation, easing concerns about the financial system, and expectations for China's economic recovery, the KOSPI rose more than 1%. Amid increased market volatility caused by recent negative news from the U.S., renewed optimism about China's economic recovery is expected to serve as a pillar supporting the stock market.

KOSPI rebounds on institutional buying... recovers to 2370 level

On the 15th, the KOSPI closed at 2,379.72, up 30.75 points (1.31%) from the previous day. The KOSDAQ ended the session at 781.17, rising 23.12 points (3.05%). After recording the largest drop this year the previous day, both the KOSPI and KOSDAQ rebounded due to easing concerns from the U.S. and expectations for China's economic recovery. The KOSPI recovered to the 2370 level, and the KOSDAQ rose above 780.

Institutions led the rise in the KOSPI, while foreigners drove gains in the KOSDAQ. On that day, institutions net bought 293.3 billion KRW in the KOSPI market but net sold 25.5 billion KRW in the KOSDAQ market. Foreigners purchased 361.3 billion KRW in the KOSDAQ market but sold 77.3 billion KRW in the KOSPI market. Individuals sold 247.4 billion KRW in the KOSPI market and 321.1 billion KRW in the KOSDAQ market, respectively.

Park Gwangnam, a researcher at Mirae Asset Securities, explained, "The rebound in the U.S. stock market, driven by relief over the slowdown in U.S. inflation and easing concerns about the financial system, had a favorable effect on the domestic stock market. Additionally, China's real economy indicators for January-February, released during the trading session, met expectations, expanding optimism about China's economic recovery."

On that day, China's National Bureau of Statistics announced that retail sales for January-February increased by 3.5% year-on-year, and industrial production rose by 2.4%. The retail sales growth rate met market expectations and showed significant improvement compared to December last year (-1.8%). Industrial production was higher than December's 1.3% but slightly below the expected 2.6%. Im Hyeyoon, a researcher at Hanwha Investment & Securities, said, "Industrial production appears to have been limited by disruptions in economic activities following the easing of COVID-19 restrictions. Considering the rebound in the manufacturing Purchasing Managers' Index (PMI), the production recovery trend is expected to strengthen gradually."

Additionally, fixed asset investment for January-February was 5.5%, surpassing both December last year (5.1%) and expectations (4.4%). Real estate development investment for January-February decreased by 5.7% year-on-year, but the decline narrowed compared to last year (-10.0%). Researcher Im commented, "The narrowing decline in real estate investment suggests signs of recovery in the real estate market, which is positive. Investment is expected to rebound moderately based on government policy support."

Renewed focus on China's economic recovery momentum

Despite concerns about U.S.-led tightening this year, the domestic stock market showed a favorable trend due to expectations for China's reopening (resumption of economic activities). However, at the National People's Congress and the Chinese People's Political Consultative Conference (the "Two Sessions") held earlier this month, China set a conservative economic growth target for this year and did not present stimulus measures sufficient to meet market expectations, weakening optimism about China's economic recovery. Furthermore, the February Consumer Price Index (CPI) released on the 9th showed a decline, indicating that despite the reopening, the pace of consumer recovery remains slow, emphasizing a delay in the reopening effect.

In this context, the confirmation of improvements in real economy indicators such as retail sales is expected to expand optimism about China's economic recovery again. Reflecting this expectation, cyclical stocks showed notable strength in the market that day. The machinery and construction sectors rose by 3.21% each, while steel and metals increased by 2.84%.

Kim Hwan, a researcher at NH Investment & Securities, said, "The third term government of Xi Jinping has set the fiscal deficit target ratio to GDP at 3.0% this year, up from 2.8% last year, and increased the issuance of special bonds to 3.8 trillion yuan, higher than last year. Fiscal expansion will highlight China's economic recovery momentum."

There is an opinion that purchasing power recovery is necessary for a resilient rebound in consumption in China. Researcher Im said, "For a resilient consumption rebound to continue, purchasing power must be supported, but it is still difficult to confirm such signs. Since the government has emphasized domestic demand recovery as the top policy priority, additional support is highly likely." She added, "Whether weak income growth, depressed consumer sentiment, and sluggish real estate market improve will determine the extent of China's economic rebound this year."

This content was produced with the assistance of AI translation services.